FEMA knew of Whitefish contract, warned Puerto Rico utility

SAN JUAN – Although its officials have insisted they did not review the controversial contract between Whitefish Energy Holdings LLC and the Puerto Rico Electric Power Authority (Prepa), a spokesman for the Federal Emergency Management Agency (FEMA) said that not only were they aware of the contract, but also warned about its inadequacies 10 days before it was signed.

FEMA spokesman Marty Bahamonde said Prepa and agency officials met on Oct. 7 to discuss the tasks Whitefish would take on to repair the island’s main transmission and distribution lines–which were so affected by Hurricane María that more than half of Puerto Rico’s residents remain without power–according to information published by Debtwire, a subscription-based news service. The contract with the questioned amendments was signed Oct. 17.

The distressed-debt-news service also quotes the head of Prepa’s Supplies Division–Ramón Caldas, who was in charge of drafting the initial contract with Whitefish–confirming the meeting. Caldas also said the public corporation’s legal advisers, including Greenberg Traurig, met on several occasions with Whitefish lawyers to go over the terms of the contract.

The Whitefish contract has raised controversy because Prepa chose to hire a private company with limited experience instead of the American Public Power Authority. (Juan José Rodríguez/CB)

The initial agreement with the Montana-based company, which at the time of signing only had two employees, was signed by Caldas on Sept. 26. Twenty days later, the contract was amended to comply with FEMA requirements, Prepa Executive Director Ricardo Ramos said.

The public utility, which has accumulated $9 billion in debt, is under a bankruptcy-like process in federal court. Compliance with FEMA requirements when contracting is needed for the agency to reimburse expenses incurred, in this case to repair the electric grid.

On Oct. 24, FEMA officials questioned Prepa attorney Javier Morales Tañon and Greenberg Traurig about the Whitefish contract, which was for up to $300 million.

“At the end of the call, the FEMA team concluded that they will want to follow up with additional questions and information requests on the procurement process, but that they had no comments on the Whitefish contract at this point since it appeared to comply 100% with FEMA regulation,” reads a letter sent by Gov. Ricardo Rosselló to John Roth, the inspector general of the Department of Homeland Security.

Days later, FEMA representatives testified in Congress that the contract raises many questions. The agreement is under investigation by federal authorities and the Puerto Rico Comptroller’s Office. Caribbean Business learned that the comptroller has seven auditors and two lawyers conducting the investigation.

The Whitefish contract has not only raised controversy in Puerto Rico, but also stateside because Prepa chose to hire a private company with limited experience, instead of requesting cooperation through the mutual assistance program of the American Public Power Association (APPA), of which it is a member.

Director Ramos has admitted that the clauses questioned by FEMA should not have been included in the contract; however, despite the agency’s alert and the advice of Greenberg Traurig, not only were they included, but also appear in the contract signed with Cobra Acquisitions a few days later.

A week ago, the utility director dismissed Legal Affairs Director Javier Morales Tañón, who on Oct.17 signed the legal opinion on which Ramos and Prepa’s governing board based their authorization of the Whitefish contract. The same document was used as a model for contracting Cobra. Both documents had to be amended following complaints from federal and state officials because they included clauses with incorrect and contradictory information.

The legal opinion signed by Morales Tañon assures that the amendment signed on Oct. 17–where it is established that FEMA authorized the contract, breaks down the rates to be paid and stipulates that neither state nor federal authorities may audit the cost and profit elements of the labor rates–”complies with all applicable legal provisions.”

“This first amendment was drafted in collaboration with the law firm Greenberg-Traurig LLP, so said contract will meet and comply with all the contractual provisions required by the Federal Emergency Management Agency (FEMA) and seeks that said federal agency reimburse the Authority the monies paid to Whitefish under this contract,” reads the opinion issued the same day the contract was signed.